I can still remember the incredible sense of freedom of earning my first full-time paycheck. However, with that thrilling independence also came some financial anxiety. Life was expensive (and still is!), and despite my economics degree, figuring out how to responsibly spend and save with my own money felt overwhelming. What’s a Roth IRA? How do I get a good credit score? What percentage of my take-home pay should I spend on rent?
I am not a financial advisor, so I can’t answer all of those specific questions for you. However, as a (30-something) young professional, I am happy to share some general budget and financial tips that I wish I knew during my 20s.
1- Start a budget.
This one seems incredibly intuitive (and it is!) but it’s an easy one to overlook. There are a lot of fancy apps to help you with this, but a spreadsheet can also work just fine. List all of your expenses and categorize them into fixed (like rent, insurance, etc) and variable costs (groceries, travel, entertainment, etc). Don’t forget those subscription services or coffee runs! They can really add up, so be sure to budget appropriately for them if it’s important to you. It also sometimes helps to track your spending for a few months to get an idea of your spending patterns and then you can set some realistic limits.
2- Set short-term and long-term financial goals.
This sounds overwhelming, but it doesn’t have to be! Your goals can be simple and more short-term (save up for a trip to Nashville or a new iPad) or more complex and long-term (pay off your student loans in the next five years or save up for a down payment on a new home). Whatever they are, I’d encourage you to write them down. You’re much more likely to achieve your goals if they’re written out and saved somewhere you can frequently reference (like with your monthly budget from #1).
3- Set your bills to auto-pay.
Back in what feels like prehistoric times, I used to write a lot of checks each month. But today, I am the unofficial “Queen of Auto-pay.” I set up all of my bills to auto-draft from my account each month, so I won’t ever miss a payment (which can majorly affect your credit score). Some companies also offer discounts if you set up automatic billing or pay in full (like cell phone companies or auto insurance for example), so take advantage of those opportunities if you can. A word of caution you decide to go this route: make sure to check your account balances often to avoid the dreaded overdraft.
4- Prioritizing paying down small debts or loans first.
This has become popular advice in the financial health community, and for good reason. While large student loan debt can loom heavily over your new post-graduate finances, smaller debts like credit card bills can rack up huge interest rates in a very short period. Whenever possible, pay those off quickly and try not to carry a balance.
5- Take advantage of the “magic” of compound interest.
Have you heard this before but are a little unsure of what it means? Essentially, compound interest is when you are earning interest both on the money you’ve saved and also the interest you’ve already earned. Still confused? TLDR: start saving and investing your money as soon as possible into things like your company’s 401k program.
6- Maximize your employer 401k match.
Speaking of 401ks, does your company offer a matching program? If so, maximize it! Again, I’m not a financial advisor, but this is essentially “free money” on the table for your retirement savings.
7- Build credit, responsibly.
This can be a tough one, because one of the ways that you establish credit is through loans (or “credit”), which seems a little counterintuitive. But other things like paying your bills on time, not job hopping too frequently, and keeping any credit card balances low are important as well. There are also financial planning organizations to help young people navigate the best way to do this! Seek out advice from trusted sources and get to know your score.
8- Don’t try to “compete” with everyone else.
Whether it’s a Pinterest-worthy dream wedding or the trendy designer shoes that have been targeted on your Instagram, don’t let yourself get caught up in the material side of social media. Make sure to reference your short-term and long-term goals, and don’t allow yourself to go into debt over things that don’t align with them. It doesn’t mean you can’t have fun!—But stick to your personal plan and try not to get distracted by the Instagram highlight reel of others.
9- Schedule a monthly or bi-monthly financial check-in with yourself.
Knowledge is power! Cliché saying, but definitely true when it comes to your finances. Schedule a 15 minute monthly check-in on your calendar to review your budget, look at your spending, and take a quick audit of your accounts. That way you can quickly identify if something is off or if you need to make any changes for the month.
10- “Wealth is the ability to fully experience life.” – Henry David Thoreau.
My final tip is to take a big-picture look at your fiscal philosophy. What does financial independence or success mean to you? That answer can be vastly different for different people, but knowing your “why” can help you stick to your goals and make you much happier and secure in the long term.
Alexis Flowers is the NeW Director of Programs.